Privatization of Natural Resources is an Anti-People Policy and would do far more Harm than Good to India09/06/2011

Privatisation of natural resources in India is an old debate. But it has become more relevant these days as the government is considering privatisation an imperative for resource exploration and mobilisation. But a critical analysis exemplifies the ineffectiveness of such privatisation in fulfilling policy objectives.

As an extremely diverse and unique country, India is blessed with a bounty of natural resources. With around 267 billion tonnes of coal and around 13010 million tones of iron reserves, it has its distinct position. As per the US Geological Survey (USGS), the value of India’s mineral output in the 2007-08 was $25.3 billion, (3% of GDP). State-run corporations controlled 83% of the total mining output. But with economic growth and industrial growth, demand for resources is rising exponentially. In 2006, India produced 648,000 barrels per day (bbl/d) of crude oil. However, the estimated demand that year was around 2.63 million bbl/d.

In November 2008, the High Court of Karnataka gave a verdict to stop transferring four lakes to private parties for development and maintenance as they were charging high prices and appropriating supernormal profits. In Gujarat, the state government acquired 1,777 acres of land for public purposes to construct the famous Sardar Sarovar Dam. Shockingly, 1400 acres of land, which belonged to adivasis, remained unused. The state promised to return back the unused land but the land is being used by the Sardar Sarovar Narmada Nigam Limited to build nature parks, gardens, woodlands, nature trails, and an eco-museum to attract tourists.

The Supreme Court has often taken a justifiable stand over the privatisation issue. It took a strong position in the RNRL vs RIL case where it asserted, “The State as a trustee is under a legal duty to protect natural resources. These resources meant for public use cannot be converted into private ownership.” Environment Minister Jairam Ramesh has also created some notable precedents in cases like Posco and Vedanta, which sent a signal to companies that they cannot have a free run.

The Ministry of Petroleum and Natural Gas imposed the New Exploration License Policy (NELP) in 2000 to encourage foreign and private players to take a stake in exploration domestically. But only a handful have joined including Reliance, Vedanta, Tata, Essar, et al. On another end, superlative profit opportunities in coal mining have encouraged the mafia and illegal mining, which together have destroyed the sector. Karnataka is losing Rs.150 billion annually due to illegal mining. Similarly, privatization of water and electricity distribution sans auctions and transparency has created monopoly players.

Globally, countries are increasingly nationalizing natural resources. Bolivia has been growing at 3-6% after such nationalisation. Russia nationalised its Yukos Oil Company. In Latin America, Venezuela increased taxes on foreign oil producers and made them sign new contracts under a well documented nationalization drive. Nigeria, Kazakhstan and China are also giving more priority to state-owned players in natural resource exploration. Yes, some examples are extreme.

But privatization of basic services and resources should not become a common policy initiative in developing countries. In nations like US and UK, private organisations dominate natural resources successfully. But same without transparency and the right set of monitoring institutions in developing and underdeveloped countries has only promoted corruption and created ‘resource billionaires’, ‘blood billionaires’ and ‘scam billionaires.’ India cannot afford that.